• Q3 revenues of $95.9 million increased 21.0% year-over-year
  • Q3 Invisalign case shipments of 66.2 thousand increased 17.2% year-over-year
  • Q3 gross margin of 78.1% increased 3.7% points year-over-year
  • Q3 net profit of $16.8 million or $0.22 per share


SAN JOSE, Calif., Oct. 21, 2010 (GLOBE NEWSWIRE) -- Align Technology, Inc. (Nasdaq:ALGN) today reported financial results for the third quarter of fiscal 2010, ended September 30, 2010.

Total net revenues for the third quarter of fiscal 2010 (Q3 10) were $95.9 million compared to $108.2 million reported in the second quarter of 2010 (Q2 10) and compared to $79.3 million reported in the third quarter of 2009 (Q3 09). Q2 10 net revenues include the release of $14.3 million of previously deferred revenue for Invisalign Teen replacement aligners. Excluding this, Q2 10 non-GAAP revenues were $93.9 million. Invisalign case shipments for Q3 10 were 66.2 thousand, compared to 67.5 thousand in Q2 10 and compared to 56.5 thousand in Q3 09.

Net profit for Q3 10 was $16.8 million, or $0.22 per diluted share. This is compared to net profit of $32.6 million, or $0.42 per diluted share in Q2 10 and net loss of $49.9 million, or $0.72 per diluted share in Q3 09. Q3 10 net profit includes pre-tax litigation settlement costs of $3.3 million related to the settlement of a class action lawsuit announced today. Q2 10 net profit includes a pre-tax benefit of $14.3 million to net revenues from the release of previously deferred revenue related to Invisalign Teen replacement aligners, and a pre-tax credit of $8.7 million to operating expenses for an insurance settlement related to the OrthoClear litigation. Q3 09 net loss includes pre-tax litigation settlement costs of $69.7 million, pre-tax royalties of $1.9 million and additional tax benefit of $12.7 million, for a total of $0.85 per diluted share related to the settlement agreement with Ormco Corporation.

"I'm pleased to report another good quarter of financial results for Align with revenue, gross margin, operating margin, and EPS above our outlook," said Thomas M. Prescott, Align president and CEO. "Case shipments were within our guidance range, though at the lower end, reflecting growth from North American Orthodontists and International doctors, offset primarily by greater than expected summer seasonality. This softness has persisted into the fall, especially among our North American GP dentists who have reported lower dental visits and reduced demand for premium procedures, which we believe contributed to lower than expected case submissions for Invisalign as well."

To supplement our consolidated financial statements, we use the following non-GAAP financial measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP operating expense, non-GAAP operating margin, non-GAAP net profit and non-GAAP earnings per share. Detailed reconciliations between GAAP and non-GAAP information are contained in the tables following the financial tables of this release.

Non-GAAP net profit for Q3 10 was $19.3 million, or $0.25 per diluted share. This is compared to non-GAAP net profit of $16.5 million, or $0.21 per diluted share in Q2 10 and non-GAAP net profit of $8.9 million, or $0.13 per diluted share in Q3 09.

Q3 10 Operating Results      
       
Key GAAP Operating Results Q3 10 Q2 10 Q3 09
Revenue $95.9M $108.2M $79.3M
Gross Margin 78.1% 80.4% 74.4%
Operating Expense $53.0M $41.7M $119.2M
Operating Margin 22.8% 41.9% (75.9%)
Net Profit (Loss) $16.8M $32.6M ($49.9M)
Earnings (Loss) Per Diluted Share (EPS) $0.22 $0.42 ($0.72)
       
Key Non-GAAP Operating Results Q3 10 Q2 10 Q3 09
Non-GAAP Revenue** $95.9M $93.9M $79.3M
Non-GAAP Gross Margin 78.1% 77.4% 76.8%
Non-GAAP Operating Expense $49.7M $50.3M $49.5M
Non-GAAP Operating Margin 26.3% 23.8% 14.4%
Non-GAAP Net Profit $19.3M $16.5M $8.9M
Non-GAAP Earnings Per Diluted Share (EPS) $0.25 $0.21 $0.13

Total stock-based compensation expense included in Q3 10 was $4.4 million compared to $4.3 million in Q2 10 and compared to $4.0 million in Q3 09. Stock based compensation expense included in GAAP gross margin in Q3 10 was $0.4 million, compared to $0.4 million in Q2 10 and $0.4 million in Q3 09. Stock-based compensation expense included in GAAP operating expense in Q3 10 was $4.0 million compared to $3.9 million in Q2, and $3.6 million in Q3 09.

Liquidity and Capital Resources

As of September 30, 2010, Align had $280.1 million in cash, cash equivalents, and marketable securities compared to $186.5 million as of December 31, 2009.

Key Business Metrics

The following table highlights business metrics for Align's third quarter of 2010. Additional historical information is available on the Company's website at http://investor.aligntech.com.
 

       
       
Revenue by Channel ($M): Q3 10 % of Total Q3 10/Q2 10** 
    Revenue % Change
       
North American Orthodontists $31.1 32.5% 7.0%
North American GP Dentists $36.8 38.3% (1.6%)
International $23.2 24.2% 5.5%
Non-case Revenue* $4.8 5.0% (11.1%)
Total Revenue** $95.9 100% 2.2%
       
Revenue by Product ($M): Q3 10 % of Total Q3 10/Q2 10**
    Revenue % Change
       
Invisalign Full $66.6 69.5% (1.3%)
Invisalign Express/Lite $8.9 9.3% 1.5%
Invisalign Teen $11.3 11.8% 34.8%
Invisalign Assist $4.3 4.4% 12.9%
Non-case Revenue* $4.8 5.0% (11.1%)
Total Revenue $95.9 100% 2.2%
*includes training, ancillary products, and retainers
**Q210 excludes the release of $14.3M of previously deferred revenue for Invisalign Teen replacement aligners
 
Cases Shipped by Channel: Q3 10 % of Total Q3 10/Q2 10
    Cases % Change
       
North American Orthodontists 23,155 35.0% 0.3%
North American GP Dentists 26,840 40.5% (5.7%)
International 16,245 24.5% 1.9%
Total Cases Shipped 66,240 100% (1.8%)
       
Cases Shipped by Product: Q3 10 % of Total Q3 10/Q2 10
    Cases % Change
Invisalign Full 44,940 67.8% (4.5%)
Invisalign Express/Lite 9,765 14.7% 1.9%
Invisalign Teen 7,590 11.5% 11.4%
Invisalign Assist 3,945 6.0% (1.9%)
Total Cases Shipped 66,240 100% (1.8%)
       
Average Selling Price (ASP), as billed: Q3 10    
Total Worldwide Blended ASP $1,390    
International ASP $1,430    
       
Number of Doctors Cases were Shipped to: Q3 10    
North American Orthodontists 3,985    
North American GP Dentists 10,035    
International 4,245    
Total Doctors Cases were Shipped to Worldwide 18,265    
       
Doctor Utilization Rates*: Q3 10 Q2 10 Q3 09
North American Orthodontists 5.8 5.8 4.9
North American GP Dentists 2.7 2.8 2.3
International 3.8 3.8 3.5
Total Utilization Rate 3.6 3.7 3.1
* Utilization = # of cases shipped/# of doctors to whom cases were shipped
       
Number of Doctors Trained Worldwide: Q3 10 Cumulative  
North American Orthodontists 105 9,195  
North American GP Dentists 445 36,455  
International 275 16,940  
Total Doctors Trained Worldwide 825 62,590  
       
Total Invisalign Patients (cases shipped): Q3 10 Cumulative  
Number of Patients Treated or in Treatment (cases) 66,240 1,362,030  
       

Q4 Fiscal 2010 Business Outlook

For the fourth quarter of fiscal 2010 (Q4 10), Align Technology expects net revenues to be in a range of $90.5 million to $93.0 million. GAAP earnings per diluted share for Q4 10 is expected to be in a range of $0.15 to $0.17. A more comprehensive business outlook is available following the financial tables of this release.

Long Term Financial Model

Over the past two years, Align has made significant progress towards its long term financial model targets and has consistently delivered financial results at the high-end or slightly above the long term model ranges. As part of Align's annual strategic planning process, senior management evaluates the model and determines whether it is still appropriate in terms of expected top line growth, strategic investment, and return to shareholders. Given Align's recent performance and updated long-term strategy, the Company remains confident about its future and has revised the 3 to 5 year long term financial model as follows: 

     
3 5 Year Long Term Model Prior New
Revenue CAGR% 10% - 20% 15% - 25%
Non GAAP Gross Margin 73% - 78% 73% - 78%
Non GAAP Op Ex % 55% - 60% 45% - 50%
Non GAAP Op Margin 15% - 20% 25% - 30%

Align Web Cast and Conference Call

Align Technology will host a conference call today, October 21, 2010 at 4:30 p.m. ET, 1:30 p.m. PT, to review its third quarter fiscal 2010 results, discuss future operating trends and business outlook. The conference call will also be web cast live via the Internet. To access the web cast, go to the "Events & Presentations" section under Company Information on Align Technology's Investor Relations web site at http://investor.aligntech.com. To access the conference call, please dial 201-689-8261 approximately fifteen minutes prior to the start of the call. If you are unable to listen to the call, an archived web cast will be available beginning approximately one hour after the call's conclusion and will remain available for approximately 12 months. Additionally, a telephonic replay of the call can be accessed by dialing 877-660-6853 with account number 292 followed by # and conference number 358000 followed by #.  The replay must be accessed from international locations by dialing 201-612-7415 and using the same account and conference numbers referenced above. The telephonic replay will be available through 5:30 p.m. ET on November 4, 2010.

About Align Technology, Inc.

Align Technology designs, manufactures and markets Invisalign, a proprietary method for treating malocclusion, or the misalignment of teeth. Invisalign corrects malocclusion using a series of clear, nearly invisible, removable appliances that gently move teeth to a desired final position. Because it does not rely on the use of metal or ceramic brackets and wires, Invisalign significantly reduces the aesthetic and other limitations associated with braces. Invisalign is appropriate for treating adults and teens. Align Technology was founded in March 1997 and received FDA clearance to market Invisalign in 1998. Today, the Invisalign product family includes Invisalign, Invisalign Teen, Invisalign Assist, Invisalign Express, and Vivera Retainers.

To learn more about Invisalign or to find an Invisalign trained doctor in your area, please visit www.invisalign.com or call 1-800-INVISIBLE.

About non-GAAP Financial Measures

To supplement our consolidated financial statements and our business outlook, we use the following non-GAAP financial measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP operating expenses, non-GAAP profit from operations, non-GAAP net profit, and non-GAAP earnings per share, which exclude, as applicable, the impact of an litigation settlement from a class action lawsuit, the release of previously deferred revenue of Invisalign Teen royalties associated with the settlement with Ormco, the impact of an insurance settlement, and any related tax effects. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Business Outlook Summary" included at the end of this release.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our "core operating performance". Management believes that "core operating performance" represents Align's performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from "core operating performance" certain expenditures, revenues and other items that may not be indicative of our operating performance including discrete cash and non-cash charges that are infrequent or one-time in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal evaluation of period-to-period comparisons. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are provided to and used by our institutional investors and the analyst community to facilitate comparisons with prior and subsequent reporting periods. 

Forward-Looking Statement

This news release, including the tables below, contains forward-looking statements, including statements regarding, certain business metrics for the fourth quarter of 2010, including anticipated revenue, gross margin, operating expense, operating income, earnings per share, case shipments and cash. Forward-looking statements contained in this news release and the tables below relating to expectations about future events or results are based upon information available to Align as of the date hereof. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. As a result, actual results may differ materially and adversely from those expressed in any forward-looking statement. Factors that might cause such a difference include, but are not limited to, difficulties predicting customer and consumer purchasing behavior, the willingness and ability of our customers to maintain and/or increase utilization  in sufficient numbers, the possibility that the development and release of new products does not proceed in accordance with the anticipated timeline, the possibility that the market for the sale of these new products may not develop as expected, the risks relating to Align's ability to sustain or increase profitability or revenue growth in future periods while controlling expenses, continued customer demand for Invisalign and new products, changes in consumer spending habits as a result of, among other things, prevailing economic conditions, levels of employment, salaries and wages and consumer confidence, the timing of case submissions from our doctors within a quarter, acceptance of Invisalign by consumers and dental professionals, foreign operational, political and other risks relating to Align's international manufacturing operations, Align's ability to protect its intellectual property rights, competition from manufacturers of traditional braces and new competitors, Align's ability to develop and successfully introduce new products and product enhancements, and the loss of key personnel. These and other risks are detailed from time to time in Align's periodic reports filed with the Securities and Exchange Commission, including, but not limited to, its Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which was filed with the Securities and Exchange Commission on February 26, 2010. Align undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

 
ALIGN TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(in thousands, except per share data) 
 
  Three Months Ended Nine Months Ended
  September 30, 
2010
September 30,
2009
September 30,
2010
September 30,
2009
Net revenues  $ 95,947  $ 79,269  $ 294,233  $ 225,717
         
Cost of revenues  21,014  20,268  62,572  56,031
         
Gross profit  74,933  59,001  231,661  169,686
         
Operating expenses:        
Sales and marketing  26,905  27,687  83,790  84,649
General and administrative  16,203  16,224  46,159  46,231
Research and development  6,592  5,611  19,104  16,471
Restructuring   --   --  --  1,319
Litigation settlement   3,310  69,673  3,310  69,673
Insurance settlement  --   --  (8,666)  --
Total operating expenses  53,010  119,195  143,697  218,343
         
Profit (loss) from operations  21,923  (60,194)  87,964  (48,657)
         
Interest and other income (expense), net  (83)  (271)  (480)  434
         
Profit (loss) before income taxes  21,840  (60,465)  87,484  (48,223)
         
Provision for (benefit from) income taxes  5,025  (10,523)  23,136  (5,462)
         
Net profit (loss)  $ 16,815  $ (49,942)  $ 64,348  $ (42,761)
         
Net profit (loss) per share        
- basic  $ 0.22  $ (0.72)  $ 0.85  $ (0.64)
- diluted  $ 0.22  $ (0.72)  $ 0.83  $ (0.64)
         
Shares used in computing net profit/loss per share        
 - basic  76,081  69,528  75,653  67,278
 - diluted  78,109  69,528  77,852  67,278
 
 
ALIGN TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands) 
 
  September 30,
2010
December 31,
2009
ASSETS    
     
Current assets:    
Cash and cash equivalents  $ 264,924  $ 166,487
Marketable securities, short-term  7,396  19,978
Accounts receivable, net  63,811  54,537
Inventories  2,382  2,046
Other current assets  19,429  18,251
Total current assets  357,942  261,299
     
Marketable securities, long-term  7,829  -- 
Property and equipment, net  28,102  24,971
Goodwill and intangible assets, net  3,366  5,466
Deferred tax asset  43,778  61,535
Other long-term assets  4,218  1,969
     
Total assets  $ 445,235  $ 355,240
     
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
     
Current liabilities:    
Accounts payable  $ 5,826  $ 6,122
Accrued liabilities  44,074  42,822
Deferred revenue  30,136  32,299
Total current liabilities  80,036  81,243
     
Other long term liabilities  5,797  961
Total liabilities   85,833  82,204
     
Total stockholders' equity  359,402  273,036
     
Total liabilities and stockholders' equity   $ 445,235  $ 355,240
 
 
ALIGN TECHNOLOGY, INC.
RECONCILIATION OF GAAP TO NON-GAAP KEY FINANCIAL METRICS
       
Reconciliation of GAAP to Non-GAAP Net Revenues      
(in thousands)       
   Three Months Ended 
  September 30,
2010
June 30,
2010
September 30,
2009
       
Net revenues  $ 95,947  $ 108,196  $ 79,269
Teen deferred revenue release  --   (14,298)  -- 
Non-GAAP net revenues  $ 95,947  $ 93,898  $ 79,269
       
Reconciliation of GAAP to Non-GAAP Gross Profit      
(in thousands)       
   Three Months Ended 
  September 30,
2010
June 30,
2010
September 30,
2009
GAAP Gross profit  $ 74,933  $ 87,018  $ 59,001
Teen deferred revenue release  --   (14,298)  -- 
Ormco royalties  --   --   1,906
Non-GAAP Gross profit  $ 74,933  $ 72,720  $ 60,907
       
Reconciliation of GAAP to Non-GAAP Operating Expenses      
(in thousands)       
   Three Months Ended 
  September 30,
2010
June 30,
2010
September 30,
2009
       
GAAP Operating expenses  $ 53,010  $ 41,674  $ 119,195
Litigation settlement   (3,310)  --   (69,673)
Insurance settlement  --   8,666  -- 
Non-GAAP Operating expenses  $ 49,700  $ 50,340  $ 49,522
       
Reconciliation of GAAP to Non-GAAP Profit from Operations      
(in thousands)      
   Three Months Ended 
  September 30,
2010
June 30,
2010
September 30,
2009
GAAP Profit (loss) from operations  $ 21,923  $ 45,344  $ (60,194)
Teen deferred revenue release  --   (14,298)  -- 
Ormco royalties  --   --   1,906
Litigation settlement   3,310  --   69,673
Insurance settlement  --   (8,666)  -- 
Non-GAAP Profit from operations  $ 25,233  $ 22,380  $ 11,385
       
Reconciliation of GAAP to Non-GAAP Net Profit       
(in thousands, except per share amounts)       
   Three Months Ended 
  September 30,
2010
June 30,
2010
September 30,
2009
GAAP Net profit (loss)  $ 16,815  $ 32,603  $ (49,942)
Teen deferred revenue release  --   (14,298)  -- 
Ormco royalties  --   --   1,906
Litigation settlement   3,310  --   69,673
Insurance settlement  --   (8,666)  -- 
Tax effect on non-GAAP adjustments  (790)  6,816  (12,731)
Non-GAAP Net profit   $ 19,335  $ 16,455  $ 8,906
       
Diluted Net profit (loss) per share:      
GAAP  $ 0.22  $ 0.42  $ (0.72)
Non-GAAP  $ 0.25  $ 0.21  $ 0.13
       
Shares used in computing diluted GAAP net profit/loss per share  78,109  77,607  69,528
Shares used in computing diluted non-GAAP net profit per share  78,109  77,607  70,926
ALIGN TECHNOLOGY, INC.                    
BUSINESS OUTLOOK SUMMARY                    
(unaudited)                    
                     
Bitmap The outlook figures provided below and elsewhere in this press release are approximate in nature since Align's business outlook is difficult to predict. 
Align's future performance involves numerous risks and uncertainties and the company's results could differ materially from the outlook provided. 
Some of the factors that could affect Align's future financial performance and business outlook are set forth under "Forward Looking Information" above in this press release. 
 
Financials                     
(in millions, except per share amounts and percentages)                
    Q4 2010                
Net Revenue   $90.5 -- $93.0                
                     
Gross Profit   $68.8 -- $71.2                
                     
Gross Margin   76.0% - 76.5%                 
                     
Operating Expenses   $51.5 -- $52.5                
                     
Operating Margin   19.1% - 20.0%                
                     
Net Income per Diluted Share   $0.15 -- $0.17                
                   
Stock Based Compensation Expense:                  
Cost of Revenues   $0.4                
Operating Expenses   $3.8                
Total Stock Based Compensation Expense $4.2                
                     
Business Metrics:                    
    Q4 2010                
Case Shipments   61.5K - 63K                
Cash   $295M -- $300M                
Capex   $4.0M -- $6.0M                
Depreciation & Amortization   $2.0M -- $3.0M                
Diluted Shares Outstanding   78.5M                
                     
Full Year 2010:   FY 2010                
                     
Stock Based compensation   $16.5M                
Diluted Shares Outstanding   78M                
Align Technology, Inc.
Investor Relations Contact
Shirley Stacy
(408) 470-1150
sstacy@aligntech.com

Ethos Communication, Inc.
Shannon Mangum Henderson
Press Contact
(678) 261-7803
align@ethoscommunication.com